Industrial Location in India under Liberalization

Abstract

The economic liberalization policy initiated in the country since 1991 has made large-scale delicensing of industry and changes in the industrial location policies along with the stabilization-cum-structural adjustments of the economy. This curtailed the role of the state as industrial owner and location regulator and increases the role of private sector in industrialization. With the increasing dominance of private sector in industrialization under the liberalization policy it is expected that industries will be more spatially concentrated in the leading industrial regions. However, the neoclassical principle suggests that in the long run “divergence is followed by convergence”. This is in contrast with the theory that raises the question about the regional industrial development in India under the two policy regimes (an inward looking restrictive policy regime prior to 1980s and liberalization policy since 1991). The main objective of our study is to see whether there is convergence or divergence of industrial location and also the relative concentration of industries within the states in the post liberalization period, and thus, understands the influence of economic liberalization on industrial location in India. These two objectives are examined with the employment data of organized manufacturing sector for the pre- and post-reform periods using: first coefficient of variation of manufacturing employment, aggregated for all industries and second, location quotients and specialization coefficients, disaggregated into three use-based manufacturing sectors (consumer goods, intermediate goods and capital goods). Our study finds that there is more concentration of the manufacturing industries in the post liberalization period in India and the tendency to catch up the industrially developed states is hardly seen among the backward states, which suggest widening inter-regional divergence, as against the neo-classical principle “divergence followed by convergence”.